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Manufacturers continue to struggle as a further decline in orders undermined
output and confidence in most UK regions, according to the latest quarterly
Regional Trends Survey published by the CBI.
The fall in output at a national level in the past three months was despite
survey expectations of little change. For the second survey running, the overall
decline was driven primarily by the weakness of domestic orders, with the drop
more severe than expected in most regions.
But although export orders also remained on a downward path, the UK-wide fall
was modest and there were a number of regions that bucked this trend.
Yorkshire & the Humber and the East Midlands were major exceptions to the
downbeat national picture. Yorkshire & the Humber posted its strongest gain in
total new orders since August 2004, while the rise in export orders across the
East Midlands was the sharpest in over a decade.
The North West and South West experienced a modest rise in total orders and
export orders respectively for the second successive survey.
The sharpest falls in total orders were registered in Northern Ireland and the
South West, while Northern Ireland and the North East saw the biggest decline in
export orders, the latter recording its largest drop in 18 months.
Added to the weak demand for goods, rising costs meant that company profits were
squeezed across most UK regions. Cost increases were largely due to higher oil
and gas prices, and were substantial in all regions, with the exception of
Yorkshire & the Humber and the South East & London, where increases were fair to
modest.
A sustained rise in unit costs is anticipated over the next three months and is
expected to keep profit margins under pressure, although the expected upturn in
domestic and export prices across some regions, notably Yorkshire & the Humber,
the North West and Wales, are expected to help to reduce this impact.
The relative buoyancy of Yorkshire & the Humber across many indicators is a key
feature of the survey. The upturn in output, bucking the national trend, was the
sharpest in 18 months and reflects underlying strength across a number of
sectors, notably Engineering.
The result is that overall confidence, output,
investment plans and profitability in the region are among the most positive in
the UK.
Output trends in the past three months were mixed. As in the previous quarterly
survey, Northern Ireland was the worst affected, followed by the South West and
the West Midlands.
Only two regions reported an upturn, Yorkshire & the Humber and the East
Midlands, which recorded a modest increase for the second successive survey. But
the overall outlook over the coming months is more encouraging, with volumes
expected to stabilise at a national level.
Although several regions report further, albeit more modest declines, four
regions – led by the South East & London – expect output to increase in the next
quarter.
The problems facing UK manufacturers are further highlighted by an increase in
the proportion of firms working below full capacity, which returned to levels
last seen in mid-2004. However, there were marked regional differences.
The largest increase was in Wales, where the proportion had been well below the
UK average in the past 12 months, followed by Yorkshire & the Humber and the
South West. By contrast, the proportion of firms working below full capacity
fell in five regions - led by the South East & London and the West Midlands,
which both dropped below the national average.
UK manufacturing continued to shed jobs over the past three months. The pace of
job losses was particularly marked in Northern Ireland, the South East & London
and the West Midlands.
More modest job losses were reported elsewhere, with the exception of Scotland,
where employment rose for the third consecutive survey, and the North West where
the balance remained broadly unchanged following three years of sustained job
cuts.
Doug Godden, CBI Head of Economic Analysis, commented: "With some notable
exceptions, manufacturers continue to experience difficult times, with high
energy costs continuing to add pressure to profit margins.
“Whilst a reduction in interest rates this month appears unlikely, with
inflationary pressures remaining at bay, the Bank of England must stand ready to
cut in the months ahead should the nascent economic recovery fail to gain
momentum."
Source:
RedAlert
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